Central Asia news

Uzbekistan: Indian investor lodges US$ 100 Million complaint against the Uzbek Government

31.05.2012 23:30 msk

Ferghana

Spentex Industries Ltd, one of the leading textile companies in the world, has circulated a press note explaining the reasons for the forced bankruptcy of its investment project in Uzbekistan, the Spentex Toshkent Toytepa, the largest textile company in the Central Asia, which reads as follows:

“Uzbekistan government has committed itself to foreign investors to protect their investment and provide them legal stability in terms of the provisions of investment agreement and bilateral treaties entered on reciprocal protection and promotion of investments of the natives of other countries. An Indian investor SIl (Spentex) through its project company STTL invested and commenced its business in Uzbekistan in right earnest and made investment vide Investment Agreement dated 26th September 2006 entered between the Government of Uzbekistan and Spentex (investor). However, in the midst of term of the Investment Agreement certain changes in legal provisions, economic and business conditions and policies were adversely changed by the authorities in Uzbekistan. These changes being contrary to the provisions of Investment Agreement jeopardized the legal stability of its project company and its business became completely unviable. Spentex made many representations to Uzbek authorities and its financers for rectifying the situation but the same went unheard and ultimately project company was forced to shut down all its factories in Uzbekistan and bankruptcy was thrust upon it. Harassment by tax authorities and prosecutors was another reason which never allowed STTL to function normally as arbitrary penalties were imposed and pressure from the prosecutor was a common feature. As a result, Spentex has lodged its claim with the Government of Uzbekistan in pursuance to Investment Agreement to the tune of US$ 100 Million to compensate it for its losses in terms of its commitments. Although through the liquidation process the Liquidator has already taken over the management yet Spentex believes that Government of Uzbekistan would honor its commitments to repose and build the trust of vast community of foreign national for investments”.

As one recalls, earlier Fergana.rureported that Tashkent court declared LLC Spentex Toshkent Toytepa bankrupt, due to a “failure to pay in full for the acquired assets” and “low output indicators”. Another publication dedicated to the destiny on foreign investors in Uzbekistan (Loss of time, business and freedom: that’s all foreign investors get in Uzbekistan) by Maxim Baileys enumerates and analyzes in great detail some of the typical problems faced by foreign investors, such as problems with foreign exchange, arbitrary customs rules, unduly state’s interference into the business decision making, etc.

Experts from the local financial community who preferred to remain anonymous for fear of persecution questioned the official version of bankruptcy and considered it a case of the state-sponsored racketeering instead. “The scenario is well-known. Investors are invited to make their investments and undertake certain commitments. Soon after, the authorities create problems with sales, currency conversion, supplies, etc. so that the investor fails to meet its commitments in full. Next is the forced bankruptcy procedure, whereupon the government takes over the assets and sells off to another investor. And it goes over and over”, the expert confided.

Uzbek authorities make enormous efforts to fix the spoiled country’s reputation: it badly needs new investors instead of those it has had and used already. Yet however, the West seems to have no illusions over the true state of things in Uzbekistan and shows its attitude by canceling the fashion show of the president’s daughter in New York, boycotting cotton from Uzbekistan and openly criticizing the existing regime for the numerous reported human rights violations.